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Weak U.S. Sales, Gucci

PARIS — Continuing softness in the U.S. and ongoing investments in Gucci Group NV contributed to an 8.1 percent decline in first-half operating income at Pinault-Printemps-Redoute, the diversified French retail group that controls 53 percent of...

PARIS — Continuing softness in the U.S. and ongoing investments in Gucci Group NV contributed to an 8.1 percent decline in first-half operating income at Pinault-Printemps-Redoute, the diversified French retail group that controls 53 percent of Gucci.

PPR on Thursday reported operating income of $825.7 million for the first six months of the year versus $897.9 million for the comparable 2001 period.

Net income before amortization of goodwill declined 2.9 percent to $351.5 million.

Chairman Serge Weinberg attributed the slide to weak sales among the group’s North American businesses, especially its Rexel electronic parts wholesaler, and to investments made in Gucci.

“We expect investments in Gucci, and particularly the efforts to turn around the Yves Saint Laurent brand, to start to bear fruit in 2003 and 2004,” Weinberg told an assembly of journalists and financial analysts here.

Meanwhile, Weinberg said sales have improved over the last two months. As reported, PPR’s first-half sales declined 1.5 percent to $13.18 billion. Dollar figures have been converted from the euro at current exchange rates.

“July and August have been slightly better,” he said. “Through August, we have narrowed [the year-to-date sales decline] to 1.3 percent.”

Sales through August of the group’s retail units, which include the Printemps department stores and the Redcats catalog business, are now up 0.6 percent compared with last year. Sales through the first half were down 0.5 percent.

PPR’s other interests range from the Fnac music and book chain and Conforama furniture chain to the Guilbert office supplies wholesaler. French tycoon François Pinault controls PPR through his Artemis family holding group.

Despite the mild sales advance, Weinberg said a lasting turnaround remained far from certain.

“We have mixed signals,” he said. “Sales are mildly better in North America. Our working hypothesis is that 2003 will not be different than 2002.” Over the last year, PPR has wrestled to cut costs as a bulwark against eroding sales.

Weinberg said that the company would continue to “pursue development and reduce costs” through the end of the year.

Analysts said the results were largely in line with their projections.

“They are broadly encouraging,” said Robert Miller, equities analyst at Dresner Kleinwort Wasserstein in London. “But there is still a great deal of uncertainty in all of PPR’s markets. The U.S. market seems to be stabilizing.”

Weinberg said an 11 percent decline in industrial investment in the U.S. since the end of 2000 had weighed on Rexel. He also said an 8 percent decline in travel retail had cut into Gucci Group sales.

Meanwhile, Weinberg said the group would continue to open stores and launch new concepts, such as a 40,000-square-foot “beauty and well-being” department slated to bow at the Printemp’s flagship Boulevard Haussmann store by the end of the year.

On Thursday, PPR stock closed down 1.5 percent to $78.65 in trading on the Paris Bourse.